Gun Violence is Expensive, So Internalize the Costs

Over the weekend, I estimated the economic costs of (only) the deaths attributed to gun related violence in the United States up to Friday. Now we should figure out what to do with that information. In economics, we call these large costs, borne by third parties, externalities. Externalities are those costs and benefits that are involuntarily forced on others who had nothing to do with some original transaction. Externalities, for instance, are common in environmental economics. As you purchase (then burn) fuel, the byproducts released into the atmosphere are an externality imposed on everyone.

Because nobody associated with the transaction bears more than a de minimis amount of the cost associated with an externality, that costs does not factor into the utility estimation made when purchasing a product. That’s one reason why we impose special taxes on things, to force the original parties to a transaction to pay for, or internalize the costs. In other words, we want people to stop and think, “Is it really worth spending this much on this thing when I see the full cost?”

The obviously solution here is to tax something, but the obvious answer isn’t guns, but rather ammunition. Guns are not perishable. They can be reused many times, over many lifetimes. Ammunition cannot, generally. You get one shot per round, as it were. So let’s tax that. The first blush approach to taxation is to impose the full cost of the externality on the entire market. I can’t find the amount of ammunition sold in the United States, but I do know there’s about 12 billion rounds produced each year, worldwide. So let’s just assume these all come to the United States.1

As high as this number is, several analytical decisions here push this number down. First, that’s global ammunition production. That goes to other countries and the military. If we only had U.S. civilian sales figures, the estimated tax would be substantially higher. While this isn’t even a good first blush estimate, it does give the scale of the problem.